HSBC Holdings plc pt 2/4

HSBC Holdings PLC
05 March 2007


Financial Overview


      2005             Year ended 31Dec                                   2006
      US$m                                                   US$m          £m         HK$m


              For the year
    20,966    Profit before tax                            22,086      11,993      171,586

              Profit attributable to shareholders of
    15,081      the parent company                         15,789       8,573      122,665
     7,750    Dividends                                     8,769       4,762       68,126
              At year-end
    92,432    Total shareholders' equity                  108,352      55,151      842,545
   105,449    Capital resources                           127,074      64,681      988,127
   809,146    Customer accounts and deposits by banks     996,528     507,233    7,749,002
 1,501,970    Total assets                              1,860,758     947,126   14,469,254
   827,164    Risk-weighted assets                        938,678     477,787    7,299,160

       US$    Per share                                       US$           £          HK$
      1.36    Basic earnings                                 1.40        0.76        10.88
      1.35    Diluted earnings                               1.39        0.75        10.80
      0.69    Dividends^                                     0.76        0.41         5.90
      8.03    Net asset value                                9.24        4.70        71.85

              Share information
   11,334m    US$0.50 ordinary shares in issue            11,572m
  US$182bn    Market capitalisation                      US$212bn

     £9.33    Closing market price per share                £9.31
                                                           Over 1      Over 3       Over 5
                                                             year       years        years
              Total shareholder return to 31Dec
                2006 ^^                                     104.6       122.0        148.4
              Benchmarks: FTSE 100                          114.4       153.8        141.1
                          MSCI World                        105.8       139.9        122.4

^ The fourth interim dividend for 2006 of US$0.36 per ordinary share is
translated at the closing rate on 31 December 2006 (see note 11 on page 30).
Where required, this dividend will be converted into sterling or Hong Kong
dollars at the exchange rates on 30 April 2007 (see note 2 on page 17).
Under IFRSs accounting rules, the dividend per share of US$0.76 shown in the
accounts is the total of the dividends declared during 2006. This represents the
fourth interim dividend for 2005 and the first, second and third interim
dividends for 2006. As the fourth interim dividend for 2006 was declared in 2007
it will be reflected in the accounts for 2007.
^^ Total shareholder return ('TSR') is as defined in the Annual Report and
Accounts 2006.

 2005                 Year ended 31Dec                                  2006

        Performance ratios (%)

 15.9   Return on average invested capital ^                            14.9

 16.8   Return on average total shareholders' equity                    15.7

 1.06   Post-tax return on average total assets                         1.00

 2.01   Post-tax return on average risk-weighted assets                 1.93

        Efficiency and revenue mix ratios

 51.2   Cost efficiency ratio                                           51.3

        As a percentage of total operating income:

 50.8   - Net interest income                                           49.2

 23.4   - Net fee income                                                24.5

  9.5   - Net trading income                                            11.7


^ Return on invested capital is based on the profit attributable to ordinary
shareholders. Average invested capital is measured as average total
shareholders' equity after adding back goodwill previously written-off directly
to reserves, deducting average equity preference shares issued by HSBC Holdings
and deducting/(adding) average reserves for unrealised gains/(losses) on
effective cash flow hedges and available-for-sale securities. This measure
reflects capital initially invested and subsequent profit.


Consolidated Income Statement

 
31Dec05                                                            Year ended 31Dec06
US$m                                                        US$m            £m         HK$m

          60,094    Interest income                       75,879        41,202      589,504
         (28,760)   Interest expense                     (41,393)      (22,476)    (321,582)

          31,334    Net interest income                   34,486        18,726      267,922

          17,486    Fee income                            21,080        11,447      163,771
          (3,030)   Fee expense                           (3,898)       (2,117)     (30,284)

          14,456    Net fee income                        17,182         9,330      133,487

                    Trading income excluding net           
           3,656      interest income                      5,619         3,052       43,654  
                    Net interest income on trading         
           2,208     activities                            2,603         1,413       20,223
           5,864    Net trading income                     8,222         4,465       63,877

                    Net income from financial                
                      instruments                            
           1,034      designated at fair value               657           357        5,104
                    Gains less losses from financial         
             692      investments                            969           526        7,528
             155    Dividend income                          340           185        2,641
           5,436    Net earned insurance premiums          5,668         3,078       44,035
           2,733    Other operating income                 2,546         1,381       19,780

          61,704    Total operating income                70,070        38,048      544,374
                    Net insurance claims incurred and     
                      movement in                       
          (4,067)     policyholders' liabilities          (4,704)       (2,554)     (36,546)
                    Net operating income before loan      
                      impairment charges and other
          57,637      credit risk provisions              65,366        35,494      507,828
                    Loan impairment charges and other   
          (7,801)     credit risk provisions             (10,573)       (5,741)     (82,141)

          49,836    Net operating income                  54,793        29,753      425,687
         (16,145)   Employee compensation and benefits   (18,500)      (10,045)    (143,726)
         (11,183)   General and administrative expenses  (12,823)       (6,963)     (99,622)
                    Depreciation and amortisation of     
                      property, plant
          (1,632)     and equipment                       (1,514)         (822)     (11,762)
                    Amortisation and impairment of         
            (554)     intangible assets                     (716)         (389)      (5,563)    
         (29,514)   Total operating expenses             (33,553)      (18,219)    (260,673)

          20,322    Operating profit                      21,240        11,534      165,014

                    Share of profit in associates 
             644      and joint ventures                     846           459        6,572
           
          20,966    Profit before tax                     22,086        11,993      171,586

          (5,093)   Tax expense                           (5,215)       (2,832)     (40,515)

          15,873    Profit for the year                   16,871         9,161      131,071

                    Profit attributable to shareholders   
          15,081      of the parent company               15,789         8,573      122,665                  
                    Profit attributable to 
             792      minority interests                   1,082           588        8,406
                   

Consolidated Balance Sheet

     At 31                                                        
     Dec05                                                               At 31Dec06
      US$m                                                     US$m          £m         HK$m

               ASSETS

    13,712     Cash and balances at central banks            12,732       6,481       99,004
               Items in the course of collection from        
    11,300       other banks                                 14,144       7,199      109,984
    12,554     Hong Kong Government certificates 
                 of indebtedness                             13,165       6,701      102,371
   232,909     Trading assets                               328,147     167,027    2,551,671
    15,046     Financial assets designated at fair value     20,573      10,472      159,976
    73,928     Derivatives                                  103,702      52,784      806,387
   125,965     Loans and advances to banks                  185,205      94,269    1,440,154
   740,002     Loans and advances to customers              868,133     441,880    6,750,602
   182,342     Financial investments                        204,806     104,246    1,592,571
               Interests in associates and joint 
     7,249       ventures                                     8,396       4,274       65,287
    33,200     Goodwill and intangible assets                37,335      19,004      290,317
    15,206     Property, plant and equipment                 16,424       8,360      127,713
    26,596     Other assets                                  33,444      17,022      260,061
    11,961     Prepayments and accrued income                14,552       7,407      113,156

 1,501,970     Total assets                               1,860,758     947,126   14,469,254


     At 31
     Dec05                                                              At 31Dec06
      US$m                                                     US$m          £m         HK$m

               LIABILITIES AND EQUITY

               Liabilities
    12,554     Hong Kong currency notes in circulation       13,165       6,701      102,371
    69,727     Deposits by banks                             99,694      50,744      775,221
   739,419     Customer accounts                            896,834     456,489    6,973,781
               Items in the course of transmission to        
     7,022       other banks                                 12,625       6,426       98,172
   174,365     Trading liabilities                          226,608     115,343    1,762,104
               Financial liabilities designated at 
    61,829       fair value                                  70,211      35,737      545,961
    74,036     Derivatives                                  101,478      51,652      789,093
   188,072     Debt securities in issue                     230,325     117,235    1,791,007
     4,869     Retirement benefit liabilities                 5,555       2,827       43,196
    26,515     Other liabilities                             29,824      15,183      231,910
               Liabilities under insurance contracts         
    14,144       issued                                      17,670       8,994      137,402
    12,689     Accruals and deferred income                  16,310       8,302      126,827
     1,966     Provisions                                     2,859       1,455       22,232
    16,537     Subordinated liabilities                      22,672      11,540      176,297

 1,403,744     Total liabilities                          1,745,830     888,628   13,575,574

               Equity
      5,667    Called up share capital                        5,786       2,945       44,992
      6,896    Share premium account                          7,789       3,965       60,567
     23,646    Other reserves                                29,380      14,954      228,459
     56,223    Retained earnings                             65,397      33,287      508,527

     92,432    Total shareholders' equity                   108,352      55,151      842,545
      5,794    Minority interests                             6,576       3,347       51,135

     98,226    Total equity                                 114,928      58,498      893,680

  1,501,970    Total equity and liabilities               1,860,758     947,126   14,469,254


Consolidated Statement of Recognised Income and Expense

      2005                     Year ended 31 December                           2006
      US$m                                                                      US$m

               Available-for-sale investments:
      (400)    - Fair value changes taken to equity                            1,582
               - Fair value changes transferred to income statement on          
      (240)      disposal or impairment                                         (644)
               Cash flow hedges:
       (92)    - Fair value changes taken to equity                            1,554
      (106)    - Fair value changes transferred to income statement           (2,198)
               Share of changes in equity of associates and                       
       161       joint ventures                                                   20
    (4,257)    Exchange differences                                            4,675
      (812)    Actuarial losses on post-employment benefits                      (78)

    (5,746)                                                                    4,911
       437     Net deferred tax on items taken directly to equity                (44)
    15,873     Profit for the year                                            16,871

    10,564     Total recognised income and expense for the year               21,738

               Effect of change in accounting policy:
    (8,824)    IFRSs transition adjustment at 1 January 2005                       -

     1,740                                                                    21,738

               Total recognised income and expense for the
               year attributable to:
     9,912     - Shareholders of the parent company                           20,527
       652     - Minority interests                                            1,211

    10,564                                                                    21,738


 Consolidated Cash Flow Statement

                                                                        Year ended 31Dec
                                                                       2006          2005
                                                                       US$m          US$m

Cash flows from operating activities
Profit before tax                                                    22,086        20,966
Adjustments for:
Non-cash items included in net profit                                14,956        11,404
Change in operating assets                                         (173,269)      (91,753)
Change in operating liabilities                                     237,378        72,212
Elimination of exchange differences                                 (12,114)        2,580
Net gain from investing activities                                   (2,014)         (692)
Share of profits in associates and joint ventures                      (846)         (644)
Dividends received from associates                                       97           114
Contribution paid to defined benefit pension obligations               (547)       (2,547)
Tax paid                                                             (4,946)       (4,619)
Net cash from operating activities                                   80,781         7,021

Cash flows from investing activities
Purchase of financial investments                                  (286,316)     (378,103)
Proceeds from the sale of financial investments                     273,774       368,696
Purchase of property, plant and equipment                            (2,400)       (2,887)
Proceeds from the sale of property, plant and equipment               2,504           620
Purchase of intangible assets                                          (852)         (849)
Net cash outflow from acquisition of and increase                    
  in stake of subsidiaries                                           (1,185)       (1,662)  
Net cash inflow from disposal of subsidiaries                            62           705
Net cash outflow from acquisition of and increase                      
  in stake of associates                                               (585)       (2,569)
Proceeds from disposal of associates                                    874           422
Net cash used in investing activities                               (14,124)      (15,627)

Cash flows from financing activities
Issue of ordinary share capital                                       1,010           690
Issue of preference shares                                              374         1,298
Net purchases and sales of own shares for                                
  market-making purposes                                                 46           (55)
Purchases of own shares to meet share awards                           
  and share option awards                                              (575)         (766)
Own shares released on vesting of share awards                          
  and exercise of options                                               173           277    
Subordinated loan capital issued                                      5,948         2,093
Subordinated loan capital repaid                                       (903)       (1,121)
Dividends paid to the shareholders of the parent company             (5,927)       (5,935)
Dividends paid to minority interests - equity                          (710)         (508)
                                     - non-equity                         -             -
Net cash (used in)/from financing activities                           (564)       (4,027)
Net (decrease)/increase in cash and cash equivalents                 66,093       (12,633)
Cash and cash equivalents at 1 January                              141,307       160,956
Exchange differences in respect of cash and cash equivalents          8,086        (7,016)
Cash and cash equivalents at 31 December                            215,486       141,307


Additional Information

1. Accounting policies

The consolidated financial statements of HSBC and the separate financial
statements of HSBC Holdings have been prepared in accordance with International
Financial Reporting Standards ('IFRSs') as endorsed by the EU. EU-endorsed IFRSs
may differ from IFRSs as published by the International Accounting Standards
Board ('IASB') if, at any point in time, new or amended IFRSs have not been
endorsed by the EU. At 31 December 2006, there were no unendorsed standards
effective for the year ended 31 December 2006 affecting these consolidated and
separate financial statements, and there was no difference in application to
HSBC between IFRSs endorsed by the EU and IFRSs issued by the IASB.
IFRSs comprise accounting standards issued by the IASB and its predecessor body
and interpretations issued by the International Financial Reporting
Interpretations Committee ('IFRIC') and its predecessor body.
IFRSs significant accounting policies applicable to the consolidated and the
separate financial statements of HSBC Holdings can be found in Notes 1 and 2 of
the Annual Report and Accounts.

During 2006, HSBC changed how certain of its geographical segments are managed
and their performance assessed. As a result, a new segment, Latin America and
the Caribbean ('Latin America'), was formed from the Group's businesses
previously reported under South America, and those in Mexico and Panama which
had been previously reported as part of the North America geographical segment.
All prior period comparative data have been restated to conform to the current
year presentation.

On 1 January 2006, HSBC adopted 'Amendments to IAS 39 and IFRS 4 - Financial
Guarantee Contracts', 'Amendment to IAS 21 The Effects of Changes in Foreign
Exchange Rates - Net Investment in a Foreign Operation', and 'Amendment to IAS
39 - Cash Flow Hedge Accounting of Forecast Intragroup Transactions'. The
application of these amendments had no significant effect on the consolidated or
separate financial statements.

On 1 January 2006, HSBC adopted 'IFRIC 7 Applying the Restatement Approach under
IAS 29 Financial Reporting in Hyperinflationary Economies', 'IFRIC 8 Scope of
IFRS 2' and 'IFRIC 9 Reassessment of Embedded Derivatives' ahead of their
effective dates. The application of these interpretations had no significant
effect on the consolidated or separate financial statements.

2. Dividends

On 5 March 2007, the Directors declared a fourth interim dividend for 2006 of
US$0.36 per ordinary share, a distribution of US$4,171 million. The dividend
will be payable on 10 May 2007 to holders of ordinary shares on the Register at
the close of business on 23 March 2007. The dividend will be payable in cash, in
US dollars, sterling or Hong Kong dollars or a combination of these currencies,
at the forward exchange rates quoted by HSBC Bank plc in London at or about 11am
on 30 April 2007, and with a scrip dividend alternative. Particulars of these
arrangements will be mailed to shareholders on or about 3 April 2007, and
elections will be required to be made by 26 April 2007. As this dividend was
declared after the balance sheet date, it has not been included in 'Other
liabilities' at 31 December 2006.

The dividend on ordinary shares held through Euroclear France, the settlement
and central depositary system for Euronext Paris, will be payable on 10 May 2007
to the holders of record on 23 March 2007. The dividend will be payable in cash,
in euros at the forward exchange rate quoted by HSBC France on 30 April 2007 or
as a scrip dividend. Particulars of these arrangements will be announced through
Euronext Paris on 22 March 2007 and 28 March 2007.

The dividend on American Depositary Shares ('ADSs'), each of which represents
five ordinary shares, will be payable on 10 May 2007 to holders of record on 23
March 2007. The dividend of US$1.80 per ADS will be payable in cash in US
dollars or as a scrip dividend of new ADSs. Particulars of these arrangements
will be mailed to holders on or about 30 March 2007, and elections must be
received by the depositary by 20 April 2007. Alternatively, the cash dividend
may be invested in additional ADSs for participants in the dividend reinvestment
plan operated by the depositary.

The Company's shares will be quoted ex-dividend in London, Hong Kong and Bermuda
on 21 March 2007 and in Paris on 26 March 2007. The ADSs will be quoted
ex-dividend in New York on 21 March 2007.

Dividends declared on HSBC Holdings shares during 2006 were as follows:
                 
                                            2006                          2005                       2004
                                                   Settled                       Settled                   Settled
                                      Per               in       Per                  in     Per                in  
                                    share   Total    scrip     share      Total    scrip   share     Total   scrip 
                                      US$    US$m     US$m       US$       US$m     US$m     US$      US$m    US$m

Dividends declared on 
  ordinary shares            
Fourth interim dividend in    
  respect of previous year          0.310   3,513    1,542     0.270      3,007      431       -         -       -
First interim dividend in           
  respect of
  current year                      0.150   1,712      248     0.140      1,563      677   0.130     1,425     747
Second interim dividend in          
  respect of current year           0.150   1,724      515     0.140      1,574      311   0.130     1,436     746
Third interim dividend in           
  respect of
  current year                      0.150   1,730      223     0.140      1,585      392   0.130     1,444     255
Third interim dividend in              
  respect of previous year              -       -        -         -          -        -   0.240     2,627     346

                                    0.760   8,679    2,528     0.690      7,729    1,811   0.630     6,932   2,094


                               Per                                     Per                  Per          
                             share    Total                          share      Total     share     Total   
                               US$     US$m                            US$       US$m       US$      US$m   

Quarterly dividends on preference share capital

March dividend               15.50       22                              -          -         -         -
June dividend                15.50       23                              -          -         -         -
September dividend           15.50       22                              -          -         -         -
December dividend            15.50       23                          14.29         21         -         -

                             62.00       90                          14.29         21         -         -

On 12 February 2007, the Directors declared a dividend of US$15.50 per 6.20 per
cent non-cumulative US dollar preference share (Series A dollar preference
share), equivalent to a dividend of US$0.3875 per Series A American Depositary
Share, each of which represents one-fortieth of a Series A dollar preference
share. The dividend is payable on 15 March 2007 to the holder of record on 1
March 2007.









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